The friend mode works like this:
In the code, you enter the ICAO codes of all of your friends who have ADS-B out capability.
You also have to enter a corresponding total count of all of the "friend" codes you have entered. (i.e. if you have 4 friend codes entered, enter "4" on another field so it knows how many it has to parse...it is in the documentation I think, but if not, let me know and I'll add it)
So when a code is a "friend", you won't get traffic alerts on them ever. This is important to know, and be careful of, because they could fly right at you and you won't get alerts...at least not alerts that are generated by the system. (your EFIS may generate it's own alerts, depending on the EFIS) The Echo doesn't generate ANY traffic alerts by default, so this box fixed that, but then removes friends from alerting. This allows you to fly formation with your buddies, and keep track of them all the time, without them having to squawk standby. (You still want to squawk standby when doing flight following in communication with ATC, so that only the lead squawks)
Additionally, depending on your EFIS capability (this works on my Chelton but may not on other systems, I'm not sure), if a target is defined as "friend", it changes some integrity parameters that are sent to the EFIS and on my EFIS it changes the target shape. I have it set so that any friend target further than 1nm away uses the shapes in the 2nd row to display the target. The default on my system is row 1. The thing that makes this nice is that if you are doing an in-flight meetup, and your EFIS supports this target stuff, you can pick them out of the crowd.
I should note that I don't think AFS supports these other target symbols, but they have the benefit of displaying N-Numbers, while I can't on my EFIS, so this change in target type may not affect you display. The parameters are editable too, so that if you don't like the alternative target shape, you can modify it to normal.
There are other settings related that you can play with as well, and I've tried to document most of them.
The Friend code can be completely disabled, as well, if you don't want to use it, or if you just happen to be one of those guys who has no friends.